It may only be March, but the granite town hall in Aberdeen is shining in the spring sunshine like a fairy castle. The council has just moved into this newly sandblasted historic building as part of a wider city facelift that will see a local grandee spending £50m to spruce up central gardens and a new "Merchant Quarter" bring boutique hotels to an area better known for its seedy pubs.

All Britain's oil capital needed was for some modern Merlin to come along and sprinkle financial fairy dust on the business sector to get the city moving, and he arrived in the guise of chancellor of the exchequer.

George Osborne unveiled a series of tax breaks and other incentives for the oil industry last week that could create a new mini-boom. And it was just in time. The global crude price might be riding high but the operators and contractors who bring commercial life to the Silver City were feeling decidedly low. North Sea crude and gas production fell 17% in 2011, one of its biggest ever annual drops, while the number of exploration wells drilled was down by half on 2010.

The UK offshore industry had been reeling from a windfall tax imposed by the chancellor in the budget this time last year. Even some petroleum executives were joking about the North Sea as the "Dead Sea", while other energy professionals believed it was time the UK concentrated on wind and nuclear.

But it is all smiles in the north-east of Scotland now, typified by an enormous grin on the face of the 6ft 7in Dutchman who runs Aberdeen-based Taqa Bratani.

Leo Koot, the managing director at this outpost of the Abu Dhabi state oil group, admits he had been depressed about where the local offshore industry had been heading. "When my parent company starts making references to Britain's [high] tax regime, that is not good. I had a lot of explaining to do. Obviously the biggest risk would be for [our] growth vision for the North Sea to be curtailed," he says.

And Taqa is just the kind of business that Osborne needs to keep sweet if he is to put the brakes on the precipitous level of decline in the domestic oil and gas industry, which not only makes Britain more reliant on foreign imports but also reduces Treasury tax take.

The Gulf-state company has brought its petrodollars to the region partly to pick up the latest technological know-how on exploration and production, but also because it sees the North Sea as a welcome diversification.

Taqa has similar overseas operations in Canada and has gradually secured a host of UK fields such as North Cormorant and Tern as well as the Brent system of pipelines.

Koot is unwilling to spell it out, but it seems clear that his company will now be in the market to buy up more assets no longer wanted by Shell, ExxonMobil and other western oil majors in the North Sea.

These potential sellers, who played a big role building up the UK oil province in the early days, are more interested in chasing the big "elephant" discoveries still available in emerging regions such as Angola, Brazil and Mozambique. They are gradually selling off their less-productive North Sea platforms and pipelines to those with a narrower focus.

Smaller firms such as Taqa, Talisman Energy of Canada and America's Apache are the new buyers. They have demonstrated that they can come in to mature basins and squeeze out ever more oil.

Since 2008, Taqa has taken over a portfolio of fields producing 25,000 barrels of oil a day at the time they were acquired. Now it is producing double that amount by smart use of new technology and targeted investment. Last year alone, it spent nearly $500m (£315m) upgrading and expanding its equipment.

Koot now says "billions" in new investment could be unleashed by the fiscal changes introduced by the chancellor.

And Malcolm Webb, director general of the industry lobby group Oil & Gas UK, believes it could lead to £40bn of new spending. He describes the government's new tax changes as a "turning point", underlining his belief that the Treasury has now come to accept the industry's constant refrain that it needs fiscal stability.

Although the £3bn worth of tax breaks for exploring the deep waters west of Shetland and better treatment for smaller fields were welcomed, perhaps the most significant change was Osborne's promise to provide contractual certainty over the decommissioning of old platforms.

Peter Buchanan, chief executive of Valiant Petroleum, says this has been a problem for many years, and has made it much more difficult for the oil majors to sell off old fields to the smaller, nimbler newcomers.

Most industry experts now accept that new reserves are going to be brought on stream not so much by building new platforms – although Taqa does not rule that out – but by incremental reservoirs being "tied back", or connected up, to existing platform and pipeline infrastructure.

However, BP is bucking that received wisdom: it was given permission to drill brand new wells in the deep Atlantic off Shetland on Friday. BP has increased its North Sea spending by 50% in recent years to £1.5bn annually as it presses ahead with development of projects in this region, such as Clair Ridge.

Total, the large French oil group, is also spending large amounts of cash on the Laggan and Tormore fields, also west of Shetland.

"We know there are large discoveries to be made there," explains a BP spokesman in Aberdeen, who explains how oil can be brought up via floating production systems and loaded onto tankers out at sea.

Environmentalists are not happy about oil companies – particularly BP – drilling in the pristine waters of the far north. They refer to the Deepwater Horizon disaster in the Gulf of Mexico as an example of what can go wrong. And they note that in recent weeks Chevron has faced a $11bn claim from prosecutors in Brazil for a spill there.

Green groups, which say digging more oil out of the ground only slows any move towards a low-carbon economy, are not the only critics of the oil industry. Jake Molloy, a 17-year veteran of North Sea platforms himself and now a trade union organiser for the RMT based in Aberdeen, is also wary.

He supports tax breaks to encourage oil companies to squeeze out the last drop of crude, and he goes further, saying he would like governments to stop tinkering endlessly with the fiscal regime and commit themselves over the life of the parliament not to make further changes.

But he tempers this upbeat message with frustration at what he sees as employers in the industry – oil companies and contractors – outsourcing their staffing and diluting employment protections.

This is typified, in his view, by the decision by Wood Group, a big commercial success story and a contractor for Taqa, to transfer employment contracts to a sister company based in Guernsey.

Wood claims it needs to do this to remain competitive; meanwhile its chairman, Sir Ian Wood, is the man offering the £50m to renovate Aberdeen's municipal gardens. Molloy says tartly: "It is not quite Camelot in Aberdeen yet."